Secret

# Summary
- Bootstrap liquidity for DEX and lending market through incentives to ensure a successful launch with sufficient liquidity to attract power users
- Source enough DOT supply into lending market to enable the usage of the iBTC staking product
- Register qDOT and qUSDT as vault collateral to improve efficiency and source liquidity into lending market
- Focus on main DEX pools (iBTC/DOT, iBTC/USDT, INTR/DOT) and lending markets (iBTC, USDT, DOT)
- A total of 11.96m INTR (~$239,000) would be requested from the treasury to incentivize DEX pools and lending markets for three month. This amounts to around 4.6% of the current treasury
- Target TVLs are $3.7m for the DEX and $1.6m for the lending market

# Goal
The goal of this discussion post is to get community feedback on the plan outlined below, how to successfully launch the DeFi hub on Interlay and to attract sufficient capital to enable efficient usage of the DEX, lending market, bridge as well as the highly anticipated iBTC staking product.

In order to achieve this, two main requirements need to be put in place. First, to attract enough liquidity, it is proposed to incentivise the lending markets and liquidity pools. Secondly, to ensure sufficient supply of DOT into the lending market, which is a requirement for the iBTC staking product to work, it is proposed to register qDOT as vault collateral. 

qDOT is the token that a supplier receives for depositing DOT into the lending market. qDOT can be redeemed for DOT any time, given the market has free liquidity. Doing so, vault operators don’t have to choose between depositing into the lending market or locking DOT as vault collateral but can utilize both, thereby providing borrowing liquidity for DOT as well as minting capacity for iBTC.

# Vault collateral
As stated above, registering qDOT as vault collateral is considered one of the main pillars for a successful launch of the iBTC staking product. Apart from qDOT, it is also proposed to register qUSDT as vault collateral. Albeit not being so popular as collateral, utilizing qUSDT as vault collateral would still pose an improvement in terms of capital efficiency and should have similar effects as qDOT in terms of supply in the USDT lending market.

Based on the [analysis](https://github.com/interlay/collateralization-analysis/) the following parameters are proposed:

| Asset | Liquidation Threshold | Premium Redeem Threshold | Safe Mint Threshold |
| --- | --- | --- | --- |
| qDOT | 125% | 140% | 155% |
| qUSDT | 135% | 145% | 155% |

Since qTokens are just a claim of the underlying token deposited into the lending market, the underlying tokens served as a proxy in the analysis and hence both share the same thresholds.

# DEX

One of the main goals of the launch in order to be considered successful is to attract sufficient liquidity into the pools to ensure efficient trading, even of larger positions. This is an important requirement to attract ‘power user’ that account for the majority of the volume on a DEX and are therefore a critical user group to achieve a level of trading volume that generate sustainable trading fees for liquidity provider.

Based on the experience from the Kintsugi launch, it is proposed to launch with three essential pools, with a focus on the iBTC/USDT pool, which attracted the most volume and TVL on Kintsugi (kBTC/USDT), despite lower APY compared to the kBTC/KSM pool. The proposed incentives would run for 3 month to allow enough time for trading activity to gain traction while simultaneously avoid draining too many funds from the treasury.

### Pool Overview

| Pair | Target TVL in USD | APR at target TVL | DOT deployed at target TVL | iBTC deployed at target TVL | INTR | INTR in USDT |
| --- | --- | --- | --- | --- | --- | --- |
| iBTC/DOT | 1,200,000 | 26.7% | 113,422 | 22 | 4,000,000 | $80,000 |
| iBTC/USDT | 2,000,000 | 15.2% | — | 37 | 3,800,000 | $76,000 |
| DOT/INTR | 500,000 | 56.0% | 47,259 | — | 3,500,000 | $70,000 |
| Total | 3,700,000 |  | 160,681 | 60 | 11,300,000 | $226,000 |

# Lending

Similar to the DEX, it is suggested to focus on the most important markets to bootstrap enough liquidity for borrowing and lending activities, with a special focus on the DOT market due it’s importance for the iBTC staking product.

## Market Overview

### Interest Rates Parameter

The interest rate parameters were calibrated to provide a competitive supply and borrow APY at the optimal utilization ratio compared to other lending protocols on Polkadot. The jump rate for DOT was calibrated in a way to still provide excess return for the iBTC staking product at optimal utilization. Note that the optimal utilization for DOT is suggest to be at 80% to create more liquidity to withdraw qDOT to DOT if vaults that use qDOT as collateral get liquidated.

| Market | Base Rate | Jump Rate | Full Rate | Optimal Utilization |
| --- | --- | --- | --- | --- |
| iBTC | 0.0% | 5.0% | 50.0% | 90.0% |
| DOT | 5.0% | 20.0% | 50.0% | 80.0% |
| USDT | 0.0% | 10.0% | 50.0% | 90.0% |

### Security Parameters

Based on the [analysis](https://github.com/interlay/collateralization-analysis/) the following parameters are proposed:

| Market | Max LTV | Liquidation LTV | Reserve Factor | Close Factor | Liquidate Incentive | Liquidate Incentive Reserved Factor | Supply Cap (# tokens) |
| --- | --- | --- | --- | --- | --- | --- | --- |
| iBTC | 0.63 | 0.67 | 10.0% | 50.0% | 110.0% | 0.0% | 30 |
| DOT | 0.67 | 0.77 | 10.0% | 50.0% | 110.0% | 0.0% | 1,000,000 |
| USDT | 0.67 | 0.74 | 15.0% | 50.0% | 110.0% | 0.0% | 600,000 |

Details about the parameters can be found in the (github repo)[https://github.com/interlay/interbtc/blob/f0a0144a0cd7e512bf9b2c55e57b12e4b3b5e9c4/crates/loans/src/types.rs#L89].

### Incentive Estimates

First and foremost it’s worth noticing that no incentives for the supply of iBTC are suggested. This is because the iBTC staking product relies on users supplying iBTC and locking it as collateral in order to receive staking rewards. Hence. the target TVL for iBTC is equal to the `target TVL of DOT * DOT assumed utilization / iBTC max LTV`.

The incentives for the other markets are suggested to run for three months and are merely a means to bootstrap the initial liquidity. After attracting sufficient liquidity, it is assumed that users will borrow funds to use them in DeFi application, even if it’s just to do yield arbitrage between Interlay and other lending protocols.

| Market | Target TVL (USD) | Supplied Tokens | Incentive APY | Supply APY | Total APY | Rewards (INTR) | Rewards (USD) | Assumed Utilization |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| iBTC | 595,000 | 22 | 0.00% | 1.11% | 1.11% | 0 | 0 | 20% |
| DOT | 500,000 | 94,518 | 7.20% | 19.06% | 26.26% | 450,000 | $9,000 | 75% |
| USDT | 300,000 | 300,000 | 5.60% | 8.89% | 14.49% | 210,000 | $4,200 | 80% |
| Total | 1,395,000 |  |  |  |  | 660,000 | $13,200 |  |

**Note:** All calculations assume an INTR price of $0.02. The actual APR and TVL might change due to price changes of INTR and the other tokens used in these calculations.

Interlay DeFi Hub Launch Discussion Post

**INTR to Omnipool**


I have seen that recently various incentives have been made for iBTC pairs in different Dexs paid in INTR

So I would like to propose the following initiative:

**Provide INTR as liquidity in the Omnipool** (by design it allows LPing a single token) in order to access a large number of assets that will expand over time, which by providing liquidity, is as if we were opening a pair with each Omnipool asset, without the need to be incentivizing separate pools,

and in turn the Interlay community, will be able to **manage the fees generated** through governance, opening up different possibilities

It should also be noted that the HydraDX community owns and already provides **10 iBTC as liquidity**, which currently makes Omnipool the best option in terms of slippage, you can review it for yourselves

Also INTR could be used as an incentive in the Omnipool **(this can be separated in another discussion and is not the main point of the proposal)** once Liquidity Mining is active and create a broader liquidity base (with the difference that the LM of the Omnipool rewards long-term LPs, since the more last the position in the Omnipool, more rewards will be generated, these positions can also be transferred)

For now I would like to propose and discuss the above ideas, so as a community we can decide what the terms would be.

INTR to Omnipool 

Dear Interlay community, 

We've got a slightly awkward situation in our governance with respect to proposals #46 and #47. 

**TLDR**
- Stellaswap made a treasury proposal to help build up the liquidity of iBTC and INTR in their new, more efficient Pulsar AMM (Uniswap v3-style). https://interlay.subsquare.io/democracy/referendum/46
- That proposal passed with 88% "aye" votes and a comparably high turnout. 
- Unfortunately, an XCM bug caused the transfer to fail*
- The TC committee decided to re-execute and fast-track the proposal, considering it had clearly passed the vote. 
https://interlay.subsquare.io/democracy/referendum/47
- Fast-track only gives 3h to vote. Parties opposing the original proposal (a minority of the original vote) voted "No" again - but this time the proposal failed. 

**What now?**
It is important to understand why the re-execution of the proposal was blocked. 

- Did the community change its mind with respect to the Stellaswap proposal? 
- Or was there simply insufficient time for everyone to vote on the re-execution? 

We have 3 options on how to proceed: 

1. Re-vote on the same proposal with a full 7-day vote. 
2. Re-execute via fast-track (if majority of the community is clearly in favor)
3. Change the proposal and put to 7-day vote

Either way, we need to come to an agreement. 
FYI: the Pular pool was set to launch next week, considering the original proposal had passed. 

---
* The runtime upgrade in referendum #45 updated the Interlay XCM weight types. This change was not accounted for when the StellaSwap referendum #46 was made. The referendum passed but due to the change in the XCM weight types, #46 cannot be decoded by the chain and thus not executed. No XCM transfer happened. 

Stellaswap Liquidity Program - Vote passed, XCM msg failed, re-execution downvoted 

**Pool description**
A treasury proposal ([link to proposal](https://interlay.subsquare.io/democracy/referendum/30)) for using treasury funds to incentivise iBTC/DOT pool on Arthswap passed with community voting in November 2022. The pool was setup to bring iBTC into Astar network, it was also the first step for getting iBTC qualified as a collateral asset on the lending/borrowing markets like SiO2 and Starlay on Astar. 

The main objective for incentivising this pool was to build enough liquidity for iBTC on Astar to achieve qualification as a lending collateral asset. Arthswap proposed to provide 2,934,000 ARSW incentives and Interlay treasury would match with 312,000 INTR. The targeted liquidity of the iBTC/DOT pool by the end of 3 months incentive period, was 200k USD. However, the rewards were not fully distributed by the end of the incentive period. 

Arthswap farming pools deploys a rule of “the multiplier”, which is the weight of the percentage for the ARSW farming reward distribution to the pool, changes according to the liquidity, starting with a multiplier of 1. The more liquidity is in the pool, the higher the multiplier could get and the more rewards could be contributed by ArthSwap. At the end of the incentive period, the pool size did not hit the line which changes the multiplier, therefore there remains a large percentage of unused INTR incentives. Arthswap team, as agreed, refunded the unused reward allocation for INTR to the Interlay Treasury.

### Pool Performance Details:

**Incentive length:** 3 months
**Incentive period**: 2022/11/09 → 2023/02/10

**Total incentives planned:** 
312,000 INTR
2,934,000 ARSW

**Target TVL at the end of incentive period:** 200,000 USD
**TVL (02/06/2023):** 49,820 USD

**Estimated APR at Target TVL:** 
**APR (02/06/2023):** 23%

**Total INTR  incentive planned:** 312,000 INTR in 3 months period
**Actual INTR incentive payout:**  12,800 INTR in 3 months period

**Incentive surplus:** 299,200 INTR
**The incentive that has not been paid out by the end of 3 month period has been returned to the Interlay Treasury.**

Transaction block: [https://blockscout.com/astar/tx/0x7ff56a35895c2123b3f15aa882c2540be528decfeb63428fdbbc4ddda164625a](url)


### **Conclusion:**
iBTC/DOT pool has achieved the purpose of bringing iBTC to Astar community. However, the performance of the liquidity pool was below expectations. The incentive payout structure on Arthswap did not allow the distribution of all incentive within the planned incentive period, which led to the result of this pool not hitting the TVL target for qualifying iBTC as a lending collateral asset on Astar lending markets. Surplus INTR incentives have been returned to Interlay Treasury team. 



Performance review of iBTC/DOT pool on Arthswap

Dear Interlay Community,

We propose a new vision document for Interlay v2, following up on the original technical paper from 2018 and the Interlay v1 specification.

As a community, we have been working hard to bridge the gap between Bitcoin and DeFi, shipping the first-ever fully decentralized and economically trustless BTC bridge. iBTC can already be used in DeFi protocols across numerous parachains and over $10 million has been processed in bridge volume across Kintsugi and Interlay. The bridge has undergone 5 audits and withstood a trial of fire during the recent market crash - fulfilling the original vision of Interlay v1. 

Interlay v2 proposes to take the next step toward the mass adoption of Bitcoin: making access to decentralized BTC finance as easy as using an ATM.  This is achieved by introducing native DeFi functionality to the network: a decentralized AMM-based exchange (Uniswap v2 model and Curve Stableswap) paired with a liquidity protocol for BTC borrowing and lending (Compound v2 model). By creating markets catering to Bitcoin holders and building deep liquidity in these protocols, Interlay will enable easy, one-click access to Bitcoin-centered DeFi use cases, ranging from simple passive liquidity provision to tailored long/short leverage positions.

The whitepaper provides a deep dive into the Interlay v2 architecture, covering consensus, (bridge and oracle) infrastructure, DeFi, and application layers. Further, it proposes updates to the fee model as well as the economic model of the native INTR token (short “INTRnomics”). Finally, it offers an outlook on upcoming product and feature improvements, as well as open “moonshot” problems that have the chance to turn into zero-to-one innovations. 

We call the community to review this vision document and share thoughts, ideas, and suggestions - and ultimately **put the proposed course of action to a vote**. 

Your voice as a community, as always, defines the next steps for Interlay - and in this case, for the future of Bitcoin DeFi. 

[Interlay v2: Bitcoin Finance, Unbanked (v0.1)](https://gateway.pinata.cloud/ipfs/QmWp62gdLssFpAoG2JqK8sy3m3rTRUa8LyzoSY8ZFisYNB)


For those who prefer experimentation over reading: a first, raw alpha of the DeFi Hub is already [live on testnet](https://kintnet.interlay.io/)


Interlay v2: Bitcoin Finance, Unbanked

# Capacity-based Vault Revenue Distribution

tl;dr. 

* The current Vault reward distribution model is based on how much iBTC has been minted with a Vault. 
* This model presented itself unsuitable, both in terms of fairness, capital efficiency, and benefit to protocol growth. 
* The proposed v2 model hence takes into account iBTC capacity, i.e., how much BTC a Vault can secure, unrelated to how much is already being used. 
* The v2 model focuses on increasing minting capacity for new users ahead of the Interlay 2.0 DeFi hub launch, which aim to onboard significant numbers of BTC DeFi users onto Interlay. 


This is a discussion post proposing the new model ahead of deployment to the Kintsugi testnet and as auxiliary information to the Vault block reward adjustment discussion. 

The actual activation will require a dedicated governance proposal by the community.  

## Problem

In v1, Vaults revenue is composed of volume-based bridging fees (mint and redeem) and block rewards in the native INTR token, as operational subsidy while bridge revenue is growing.

Both income streams are distributed among all Vaults, \emph{proportional to how much iBTC was minted with each Vault}. 

This model presented itself non-optimal. In absence of BTC liquidity flowing into other parachains due to macroeconomics and slow enactment of unique DeFi opportunities, Vaults are forced to self-mint iBTC in order to earn rewards. This has two negative effects: on one hand, the APR for Vaults is less predictable. On the other hand, the bridge is kept at high capacity without the BTC flowing into DeFi applications: Vaults do not need to take extra risk considering high block rewards, and not all operators are comfortable with DeFi liquidity provision (and they should not be forced to). 


## Solution

**Capacity-based Reward Distribution**

The proposal is hence as follows: 

Distribute block rewards based on **available minting capacity**, i.e., locked collateral and the (custom) thresholds, rather than using minted iBTC as basis. 

The key benefit Vaults provide to the Interlay ecosystem is for users to be able to mint iBTC and to bridge it back to BTC. This new model hence focuses on incentivizing total mint capacity, i.e., how much iBTC a Vault can back in total.

The total mint capacity of a Vault is measured by the provided collateral divided by the (custom) secure collateral threshold. 

**Vaults that are not accepting new issue requests, have zero capacity.**

Vaults with more collateral provided or lower / no custom collateral thresholds provide more capacity overall to the network, taking on a higher risk and thus receive higher fees.


vINTR holders will vote on a weighting between each collateral asset, depending on multiple factors, including risk, benefit to protocol security, and capital cost (also considering external factors). 

The same capacity of a Vault with two different collateral assets might result this in a different reward.

**The issue, redeem, and replace fees are not affected by this.**

The exact model is as follows: 

![v2 formulas](https://api.ipfsbrowser.com/ipfs/get.php?hash=QmXgHRpwWozFgn5o8Mx5cRZ8AA5Go6yLuG8bB92WU2trkB)

## Expected Impact

This ensures that vaults are incentivized to provide sufficient minting capacity to allow users who want to use BTC in DeFi to mint new iBTC. This simultaneously serves as exit liquidity for vaults who want to withdraw their collateral. 

In addition, vaults that are willing to take up a higher risk of being liquidated receive proportionally higher rewards for doing so. 

To avoid excessive risk taking, the protocol enforces an lower limit on the collateral threshold that determines the risk for a vault.

This proposal is an important step to scaling the iBTC bridge ahead of the Interlay 2.0 DeFi hub launch, which aims to attract new (BTC DeFi) users to both Interlay and Polkadot as a whole.

Recommendation for New, Capacity-based Vault Reward Distribution Model

# Summary
A new type of vault can be activated using USDT via Statemint as collateral. More details below.

# Proposal
Currently only DOT is accepted as collateral for vaults. One of the main goals for iBTC stability is to diversify the number of tokens that can be used as collateral. This has also been requested by current iBTC vault operators.

The next asset suggested as collateral is a USD stablecoin - more specifically USDT. It is the stablecoin that we can enable the fastest and has been requested by the currently active vaults.

USDT can be imported from Statemint via Interlay's Crosschain Transfer XCM

**Please find below the parameter configuration proposed for the “USDT vaults”:**

**Initial collateral ceiling:** 200.000,00 USD equivalent
**Secure collateral threshold:** 155%
**Premium redeem threshold:** 145%
**Liquidation threshold:** 135%
**Minimum collateral threshold:** 150 USDT

For context, we run modelling and simulations for every new collateral type as well as many other references and points of comparison before we conclude on the collateral rates.

The next step is hence to activate this vault type with the above parameters via an on-chain governance proposal.

Please be aware that this is only a discussion post and a formal on-chain proposal will follow.

**Resources:**
USDT Asset Registered: https://interlay.subsquare.io/democracy/referendum/27
Interlay - Statemint XCM Channel: https://interlay.subsquare.io/democracy/referendum/32
Governance guides: https://docs.interlay.io/#/guides/governance (incl. how to make a proposal)
Python code used for analysis of new assets proposed as vault collateral: https://github.com/interlay/collateralization-analysis

# Relevant Information For Submitting The Proposal

## Extrinsic

https://polkadot.js.org/apps/?rpc=wss%3A%2F%2Fapi.interlay.io%2Fparachain#/extrinsics/decode/0x0302143d0b010200000000010000c7eed829bc1200000000000000003d0a010200000000010000514c516f1f1400000000000000003d09010200000000010000dba9c9b4821500000000000000003d080102000000000100d0ed902e00000000000000000000003d07010200000080d1f008000000000000000000000000

## Proposal

https://polkadot.js.org/apps/?rpc=wss%3A%2F%2Fapi.interlay.io%2Fparachain#/extrinsics/decode/0x030208460af9010302143d0b010200000000010000c7eed829bc1200000000000000003d0a010200000000010000514c516f1f1400000000000000003d09010200000000010000dba9c9b4821500000000000000003d080102000000000100d0ed902e00000000000000000000003d07010200000080d1f0080000000000000000000000004600b54b8e3b2b87d7eb7974dc34894f1a64412f9417306e062ae98258375a981da80b00a89c134602

Enable A New Vault Type With USDT As Collateral


Tl;dr. 

* KINT and INTR Vault block rewards are currently too high, considering market conditions and in comparison to competitors / projects with similar risk profile.
* This proposal suggests to adjust Vault block rewards to a more sustainable level, updating the KSM / DOT collateral requirements to competitive and more capital-efficient rates, and introducing regular review cycles to assess ROI for protocol and Vault operators. 
* The saved funding will remain with the network treasury, to be used as governance decides, e.g.. to bootstrap kBTC/iBTC growth as market conditions improve and help build liquidity in the native AMM and lending protocols set to launch on Kintsugi and Interlay in early 2023 (more details in upcoming Interlay 2.0 whitepaper - [read 2.0 roadmap announcement](https://medium.com/interlay/interlay-2-0-roadmap-c6387d9d1abb)).


## Introduction: Vaults on Kintsugi/Interlay

Vaults are the heart of the Interlay & Kintsugi networks: they secure BTC while kBTC/iBTC is being used in DeFi. To do so, they deposit collateral in different assets, insuring users against exchange rate fluctuations and loss of BTC. As such, the costs of running a Vault are twofold: 


1. Infrastructure costs and maintenance labor for running the Vault software
2. Capital (opportunity) costs for putting up collateral

During the bootstrap phase (while the Interlay and Kintsugi protocols do not generate sufficient bridge revenue to cover all operational costs), the treasury pays block rewards to Vaults in the native KINT (on Kintsugi) and INTR (on Interlay) tokens. 30% of the treasury was proposed to be used for this purpose over the first 4 years of network operation, 12% in the 1st, 9% in the 2nd, 6% in the 3rd and 3% in the 4th year. Block rewards are split among Vaults proportional to how much BTC has been minted with them (for an individual Vault: vault_BTC / total_BTC_minted). 


## Problem

The current KINT and INTR reward emission is unsustainable: 



* ~80% APR on Kintsugi
* ~65% APR on Interlay 

as opposed to what can be observed on the market from competitors/node operations comparable to the Kintsugi / Interlay risk profile: between 12% and 22.8% [3]. 

This creates a negative feedback loop: there is too much emission, disproportional to the adoption curve, and Vaults are incentivized to sell KINT/INTR in anticipation of being able to repurchase it cheaper at a later point in time. This in turn creates a downwards spiral of both token prices that slowly but steadily burns treasury funding and reduces returns for Vaults (despite the high emission). 


## Goal

The goal of this proposal is to adjust Vault block reward rates to be more sustainable while keeping incentives for operators high enough - and more reliable.


## Solution


### 1) Reduce collateral thresholds. 

The latest collateral risk models [1] suggest the following collateral thresholds for KSM (on Kintsugi) and DOT (on Interlay): 

**KSM (on Kintsugi)**



* liquidation: 130%
* premium-redeem: 145%
* secure (min. when minting): 160%

**DOT (on Interlay)**



* liquidation: 125%
* premium-redeem: 140%
* secure (min. when minting): 155%

This change **reduces the capital requirements of Vaults by ~40%**.

For more information on the meaning of individual thresholds, see [2]


### 2) Adjust Vault block rewards to competition. 

The proposal is to adjust the Vault rewards such that: 



* **APR on Kintsugi is ~30%** assuming the amount of collateral locked at the time of this proposal. This proposal updates the block reward from 0.456621004566 KINT to 0.102803978513969 KINT.
* **APR on Interlay is ~25%** assuming the amount of collateral locked at the time of this proposal. This proposal updates the block reward from 45.6621004566 INTR to 9.866085649312430 INTR. 


###  3) Regular Review  & Adjustment of Vault Economics.

Rather than having a static model, we propose that Vault economics be reviewed on a regular basis, allowing to react and adjust for external/macroeconomic events.

The community, including Vault operators, can make recommendations/requests to adjust the Vault rewards schedule via the Governance portal (guides provided). 

The process to adjust rewards will be greatly simplified over the next months with upcoming improvements to governance (more details are incoming in the Interlay 2.0 whitepaper).


## Expected Result

The optimization of collateral thresholds combined with the adjusted reward schedule is expected to reduce emissions as follows:



* KINT emission by ~78% 
* INTR emission by ~79%


## Why should community vote in favor of this proposal? 

This proposal makes a big step to improving the economic stability and outlook of both Kintsugi and Interlay. 

The current emission schedule was conceived during a growing crypto market, in anticipation of reaching significant iBTC targets by EOY 2022. However, due to recent macro-economic events in crypto (Luna, 3AC, Celsius and now FTX), as well as the two hacks (Nomad impacting Moonbeam and aUSD on Acala) affecting Polkadot, the growth of DeFi on Dotsama has not been as fast as hoped. As a result, kBTC and iBTC utilization rates are low, with most BTC sitting on Kintsugi/Interlay. 

The high initial emission was also a measure to reward early technical risk and to cover the high collateral requirements imposed at launch (260% over-collateralization for KSM/DOT Vaults).  The technical risk of the bridge can be considered significantly reduced by now. The bridge has been operating successfully since March 2022 on Kintsugi and since August 2022 on Interlay, withstanding the recent market turbulences. The removal of the aggressive BTC theft reporting [4]  has also greatly reduced the risk of wrongfully slashing Vaults.  The proposed reduction of collateral thresholds to competitive rates also constitutes a big step towards Vault capital efficiency. 


## References

[1] **Interlay Vault collateral risk modelling framework.** [https://github.com/interlay/collateralization-analysis](https://github.com/interlay/collateralization-analysis) 

[2] **Vault collateral thresholds.** [https://docs.interlay.io/#/vault/overview?id=collateral](https://docs.interlay.io/#/vault/overview?id=collateral) 

[3] **APR comparison to similar projects**. [https://api.ipfsbrowser.com/ipfs/get.php?hash=QmPhP8utFLhharELDeN6Njbc2234DGxnc4A73wxf2JHwPJ](https://api.ipfsbrowser.com/ipfs/get.php?hash=QmPhP8utFLhharELDeN6Njbc2234DGxnc4A73wxf2JHwPJ) 

[4] **Kintsugi proposal discussing removing theft-reporting.** [https://kintsugi.subsquare.io/democracy/referendum/52](https://kintsugi.subsquare.io/democracy/referendum/52) 

-- 
EDIT 23 Nov 2022 15:34 UTC: added link to Interlay 2.0 roadmap announcement


Recommended Adjustment to Vault Reward Schedule on Kintsugi and Interlay

Hello Interlay Community, 

Last week on the 13th of October at 19:45 we enacted the 1.19 runtime upgrade on Kintsugi. 
We are aiming to perform a similar upgrade to Interlay. 
Unless we discover any issues or bugs on Kintsugi following the upgrade (none so far), a proposal will be submitted to perform the 1.19 upgrade for Interlay on Wednesday this week. 

**IMPORTANT!** - **This proposal will be submitted on Wednesday the 19th of October** and **upgraded to a 4h fast-track referendum**. The 1.19 upgrade on Interlay will then be **enacted on Thursday the 20th of October in the morning, est. 8-10 a.m. UTC timezone**.
More information and details about the exact time of enactment will be provided on Wednesday. 

**Please find below the details regarding the changes contained in 1.19 as well as the link to the Kintsugi referendum:**
- Vaults can now self-redeem (burn kBTC for unlocking collateral) without sending BTC
- Removed the refund protocol since theft reporting was already eliminated
- Issue requests can now be executed after expiry if the Vault has sufficient collateral
- Allows issue requests to be cancelled prematurely by the user (may slash griefing collateral)
- Collators can now lock vKINT to register as an authority
- Adds generic registry to store client release info (for auto-updater)
- Includes all relevant changes to support polkadot-v0.9.26

**Kintsugi referendum:** [https://kintsugi.subsquare.io/democracy/referendum/64](https://kintsugi.subsquare.io/democracy/referendum/64)

1.19 Runtime Upgrade for Vaults Scheduled For Wed the 19th of October

Now that iBTC has finally launched, the next step is to launch integrations with Polkadot parachains. As a decentralized network, decisions lie with the community - and so we want to share all information and opportunities we are aware of so far to initiate discussions. 

**Goal:**
- Share a regular overview of the integration roadmap to increase community awareness
- Get feedback as early as possible (also for integration partners) to ensure fast execution
---

## Acala
*The Acala parachain is currently not fully operational as an aftermath of the aUSD incident. Follow the latest updates here: [https://acala.discourse.group/c/acala/16](https://acala.discourse.group/c/acala/16)*

**Paused**
- iBTC/aUSD pool: currently halted due to aUSD incident

**Targets**
- iBTC as aUSD collateral
    - Requirements: liquidity on iBTC/aUSD pool;
    - Status: paused until aUSD recovers; conversations with Gauntlet re. parameterization commenced;

**Exploration**
- iBTC on Pike finance money market ([https://www.pike.finance/](https://www.pike.finance/))
- iBTC + Tapio synergies ([https://www.tapioprotocol.io/](https://www.tapioprotocol.io/))
---

## Moonbeam

**Live**
- iBTC/GLMR pool on Stellaswap: [https://app.stellaswap.com/farm](https://app.stellaswap.com/farm)
    - 3rd largest pool on Stellaswap ($370k liquidity)
    - Incentivized by STELLA. Governance proposal by Stellaswap to add INTR incentives from treasury is up for voting here: [https://interlay.subsquare.io/democracy/referendum/18](https://interlay.subsquare.io/democracy/referendum/18) (currently passing but with discussions in the comments)

**WIP**
- iBTC pool on Beamswap
    - Off-chain voting about which the paired asset was completed. Results: INTR, DOT, multiUSDC (in that order) [https://voting.opensquare.io/space/interlay/proposal/QmRnD1yeP3PgVqDRUWpv7HPxTmD93WD66PfhD5xWbbdwAG](https://voting.opensquare.io/space/interlay/proposal/QmRnD1yeP3PgVqDRUWpv7HPxTmD93WD66PfhD5xWbbdwAG)
    - After discussion with Beamswap, we suggest launching a multiUSDC pair as INTR and DOT do not have deep liquidity on Beamswap and USDC enables easier assessment of impermanent loss risks. In addition, INTR and DOT are hot candidates for targeted integration with Curve (see below).

**Targets**
- Curve Finance: multiple interesting options available, including but not limited to:
    - Interlay ecosystem 3pool: iBTC/INTR/DOT
    - Polkadot version of the infamous ‘tricrypto’ pool: iBTC/DOT/USDx (USD stablecoin is open for debate, USDT and aUSD being options)

**Exploration**
- iBTC on Moonwell money market:
    - Requirements: enough iBTC liquidity on Moonbeam for flashloan liquidations on Moonwell; Chainlink price oracle (this one is a blocker)
- Further Curve Finance pools:
    - Polkadot L1 index pool: Containing tokens of largest parachains: ACA, GLMR, INTR, PARA, ASTR
    - BTC 3pool: iBTC/wBTC/renBTC (other BTC versions to be live on Polkadot first)
- iBTC on Midas Capital money market ([https://www.midascapital.xyz](https://www.midascapital.xyz/))
- iBTC and INTR as collaterals on DAM Finance lending protocol ([https://dam.finance](https://dam.finance/))
---

## Parallel Finance
XCM channel is WIP, full integration ETA 1-2 weeks (incl. bridge UI). Governance proposal open here: [https://interlay.subsquare.io/democracy/referendum/19](https://interlay.subsquare.io/democracy/referendum/19) 

**Target**
- INTR pool on Parallel DEX
    - Requirements: XCM channel open
    - Status: Currently assessing tokens pairs (will be put up for community feedback). Needed so Parallel users can get INTR to pay for iBTC bridge and XCM fees.
- iBTC on Parallel DEX
    - Requirements: XCM channel open
    - Status: Currently assessing token pairs and running calculations. Will be put up for community feedback.

**Target**
- iBTC as a borrowing asset on the Parallel money market
    - Requirements: enough iBTC liquidity on Parallel DEX so that safe liquidations are possible;
---

## Astar
XCM channel is WIP, full integration ETA 2-3 weeks (incl. bridge UI). Governance proposal open here: 
[https://interlay.subsquare.io/democracy/referendum/16](https://interlay.subsquare.io/democracy/referendum/16)

**Targets**
- iBTC on Arthswap DEX ([https://app.arthswap.org/#/swap](https://app.arthswap.org/#/swap))
    - Requirements: Astar XCM channel open.
    - Status: Pairs are being explored and will be put up for community feedback.

**Exploration**
- iBTC on Starlay Finance ([https://starlay.finance/](https://starlay.finance/)) and Si02 Finance ([https://www.sio2.finance/](https://www.sio2.finance/)) money markets
- iBTC on Sirius Finance ([https://www.sirius.finance/](https://www.sirius.finance/)) and Kagla Finance ([https://kagla.finance/](https://kagla.finance/)) stable pools
---

**Playbook for iBTC launch on new (para)chains**
The suggested order of execution is as follows:
1. Launch a decentralized bridge (e.g. XCM)
2. Launch INTR pool, so users of the new chain can pay for iBTC mint/redeem and bridge fees. Preceded by community poll re. pairing asset
3. Launch iBTC pool and create deep liquidity. Preceded by community poll re. pairing asset
4. Launch money market to enable lending (needs liquidity for liquidations)
5. Explore further Dapp integrations, prioritizing unique use cases
---

**Call for Feedback**
Ultimately, the decision about integrations lies in the hands of the community. Most DEXes and Dapps will be requesting incentives from the Interlay treasury, which requires consensus among INTR stakers. In consideration of time and effort invested, sharing feedback as early as possible is important to achieve fast execution (i.e., have an overall idea of what we all want before a Dapp makes a proposal for incentives). 
---

**How?**
- Comment on this post
- Open dedicated discussion posts for specific integrations and share your opinion

DeFi: 2022 H2 community update

Hi there!

This post is related latest iBTC pool at [https://voting.opensquare.io/space/interlay/proposal/QmRnD1yeP3PgVqDRUWpv7HPxTmD93WD66PfhD5xWbbdwAG](url), as well as [https://interlay.subsquare.io/democracy/referendum/18](url) and others.

At current market situation (entire market dip, Nomad crash, aUSD crash etc) i actually don't find strategic reasons for rewarding users at doubtful DEXes in pair with doubtful tokens. Finally, most of times users only get negative experience and lose money, as well as INTR dump under additional selling pressure.

I stongly considering we firstly need long-term marketing strategy. Here are few points i have about it:

- INTR rewards should be very small and greedy)
- the only DEX where people should be available to exchange INTR tokens should be Interlay frontend, and the only pair available there should be iBTC/INTR.
- the pairs we should pick up to reward at other DEXes should be very stable and heavy. For now these are only DOT and native USDT.
- some portion of saved INTR tokens from no-sense rewarding might be spent for better marketing, to make community better understand why iBTC is better then any centrilized brigde; some web-pages, videos etc with incidents of 9-figured amounts of hacks of other bridges

Your thoughts guys?


INTR incentives on DEXes

Considering the INTR tokens that are staked, only a few tokens are actually used for voting.

Since all INTR token holders benefit from the decisions of those who are voting, why not increase the staking rate for accounts that participate in voting, or decrease the staking rate for accounts that do not participate in voting?

If they are not voting and are simply getting only rewards from staking, we have a situation that is not the original function and purpose of the system.

A difference of about 10-20% would clarify the benefits of voting and encourage a more active discussion.

Translated with www.DeepL.com/Translator (free version)

Modification of staking rates to take into account participation rates in voting

### Summary
Now that staking and governance are live on Interlay, we would like to open an XCM channel with Moonbeam in order to facilitate transfers and further cross-chain developments and defi initiatives in between the 2 parachains.


### Discussion Point
**Any arguments against opening this XCM channel?**

We want to quickly open an XCM channel with Moonbeam as this will open many potential applications and use cases, such as liquidity pools, tokens to be considered as collateral or the option for users to transfer their iBTC to Moonbeam to be used there. 

We want to understand if the community has any strong argument against this action. If we don't see any strong opposition, we will proceed to open the channel and fast track any needed proposal towards opening this XCM channel. 

Author: Alex @Interlay

Open an XCM Channel with Moonbeam

### Summary
Vault block rewards are ready to be activated, according to the Interlay tokenomics: 30% of 4 year supply (i.e., 300 million INTR), emitted as follows:
* 40% in the first year (120 million INTR)
* 30% in the second year (90 million INTR)
* 20% in the third year (60 million INTR)
* 10% in the fourth year (30 million INTR)

Once Vault rewards are activated, iBTC minting can begin. The suggested iBTC launch date is 10th August. 

### Proposal

**Why do Vaults receive block rewards?**
Vaults are the heart of the Interlay network. Vaults are network participants who ensure BTC remains locked on Bitcoin while iBTC exists - that is, they enforce the 1:1 peg to locked BTC. To prevent misbehavior, Vaults lock collateral (at launch in DOT) with the parachain such that the collateral value always exceeds the value of the secured BTC. If a Vault misbehaves, their collateral is slashed and users reimbursed. 
Vaults take up liquidation risk as well: if the price of the collateral assets decreases significantly compared to BTC, Vaults may be liquidated and lose their collateral. Vaults hence receive INTR as reimbursement for their risk - and to ensure they can protect themselves against hostile governance takeovers. Anyone can become a Vault, anytime.

**Reminder:** Vaults only earn block rewards if they have BTC locked. Rewards are distributed based on each Vault’s share of the total BTC locked.


### Why activate now?
The parachain will soon be ready to start iBTC minting. The suggested launch date for iBTC Vaults is 10th of August. One of the next, and final steps before iBTC launch, is hence to activate Vault rewards via an on-chain governance proposal.
As always, we appreciate your time reviewing this proposal and welcome comments and feedback.

**Resources**
Interlay/Kuntsugi 101: https://docs.interlay.io/#/getting-started/interlay-101
Interlay token economy: https://docs.interlay.io/#/interlay/tokenomics 
Vault docs: https://docs.interlay.io/#/vault/overview


INTR vault rewards can now be activated

### tl;dr. 

- INTR rewards are currently not tied to iBTC TVL 
- This can skew incentives during the early stages of the network
- This proposal suggests to link INTR rewards to iBTC TVL
- The total INTR allocation to Vaults (30% of supply)  remains the same (if less is paid in month 1, more might be paid in month 2 if iBTC TVL increases)
- This parameter is subject to community review and can be easily adjusted based on iBTC TVL growth. 
- INTR rewards are capped to a fixed INTR per iBTC reward until 135.57 iBTC are minted.


### Introduction

Vaults are the heart of the Interlay network: they secure BTC while iBTC is being used in DeFi. To do so, they deposit collateral in different assets, insuring users against exchange rate fluctuations and misplacement of BTCCurrently, Vaults receive block rewards in INTR as incentive to provide this - premium - service (iBTC offers *by far* the highest security guarantees among all Bitcoin custody / wrapped BTC solutions)

Block rewards in INTR are paid every block. In the current configuration, there is no upper limit onto the block rewards that get paid out every block - i.e., there is no direct relation to the amount of actual iBTC minted and hence the real cost that Vaults have (the more BTC minted, the more collateral is needed). 

This means: if there is only a single Vault securing for example 0.1 BTC, this Vault will receive 100% of the rewards. Likewise, if there are 150 Vaults backing 1,000 BTC, the same amount of rewards are distributed every block and split among all Vaults based on their locked BTC. 

In principle, this provides incentive for more Vault operators to join the network and the emergence of a competitive market for BTC. However, during the early stages of network launch, there are numerous factors that can limit this growth, including but not limited to: (a) waiting for secure bridges to import diversified collateral assets, and (b) readiness of DeFi applications to accept iBTC and drive minting demand.

### Problems

In summary, we are looking at the following potential problems that have occurred on the Kintsugi canary network over first weeks of operation:

1. **Missing incentive to lock more collateral**: INTR/block reward is not tied to BTC TVL, which can lead to skewed incentives during early stages of growth. Until a competitive Vault market kicks off, individual Vaults may lack incentive to add more collateral to enable additional iBTC minting to users.

2. **Flooding INTR to the market**: Vaults might sell INTR tokens to recover some of their costs and generate profit. However, if the amount of INTR is completely disproportionate to the iBTC TVL and the maturity and scale of the network, this can lead to too much INTR entering the market early on - which in turn reduces the effectiveness of INTR block rewards as incentive mechanism. 

### Goal

The main goal of the INTR block rewards were/are to bootstrap iBTC liquidity and enable the Interlay network to onboard as many Bitcoin users into the Polkadot ecosystem as possible. The goal of this proposal is to tie the incentives to actual performance of Vault operators to ensure sustainable operation and growth.

### Proposal

This proposal suggests the introduction of an **INTR/iBTC per block reward rate** to tie INTR block reward payouts to iBTC TVL. This is a new parameter that can be updated via governance vote.

The more BTC is locked across all Vaults, the more INTR will be paid out by the network.

**The initial value proposed is 0.34 INTR per IBTC per block.**

This implies an INTR block reward (the maximum that can be paid out per block) of **45.66 INTR per block.** 

–> Hence, this proposal limits the rewards to max. 0.34 INTR per iBTC per block until the iBTC TVL reaches 135.57 iBTC and thereafter has no impact.

[This figure (LINK) shows both the INTR per block that is distributed among all Vaults as well as the INTR per iBTC locked per block that is distributed to all Vaults based on the total iBTC TVL.](https://drive.google.com/file/d/1oJ2EtBM3mt4RiudswQ8AmNbSjiWUZy-9/view
) Until 135.57 iBTC TVL the INTR per iBTC per block stays constant at 0.34 with this proposal. Above 135.57 iBTC TVL, as without this proposal, the INTR per iBTC per block decreases as the same amount of INTR block rewards are distributed among more iBTC TVL.

This initial rate takes into account projected iBTC TVL growth during the first weeks after launch, as well as the risks and costs associated with Vault operation. The goal is to maintain a highly competitive reward structure - but tied to performance/service provided (measured in iBTC TVL). 

As the bridge TVL and capacity grows, this parameter can be changed and adjusted via proposals made by the community. 

**Remains unchanged:**

- **The total allocation of INTR to Vaults (30% of supply) remains the same**. If less rewards are paid in Q1 due to low iBTC TVL, more rewards can be paid if TVL picks up in Q2. 
- **The INTR reward is still distributed proportionally among all Vaults based on how much BTC (%) they have locked** compared to the total minted iBTC amount.


### Suggestion to fast track - if the proposal is not contentious
Without fast-track, this proposal will go to vote in 5 days and iBTC launch will be earliest on 12 July.
All systems are ready to launch iBTC starting next week. 

Hence, we suggest: If there is agreement on this proposal, it should be fast tracked on Tuesday 5th July to ensure launch can proceed. 

If this proposal is contentious, then enough time should be left to discuss and agree - in that case, no fast-track is recommended.

### Next steps
1) Let’s discuss here
2) Please vote on the off-chain proposal to signal your position (**off-chain signalling ends Monday 4 July, 16:00 UTC**): https://voting.opensquare.io/space/interlay/proposal/QmQ88aKM3m1ER3Aq6ot8UJSf4yWUb46rjquLo1eV18QrHT
3)
 (a) If vast majority is in favor: fast-track on Tuesday 5th July 
 (b) If contentious, a longer discussion is needed. Then it needs to be decided if this should delay iBTC launch. 

### Resources:

- Vault rewards and risks: https://docs.interlay.io/#/vault/overview 
- Kintsugi kBTC dashboard: https://kintsugi.interlay.io/dashboard 

### Off-chain Signalling
https://voting.opensquare.io/space/interlay/proposal/QmQ88aKM3m1ER3Aq6ot8UJSf4yWUb46rjquLo1eV18QrHT


Introducing an INTR/IBTC Reward rate

### Summary

Vault block rewards are ready to be activated, according to the Interlay tokenomics: 30% of 4 year supply (i.e., 300 million INTR), emitted as follows:

40% in the first year (120 million INTR)
30% in the second year (90 million INTR)
20% in the third year (60 million INTR)
10% in the fourth year (30 million INTR)

### Proposal

**Why do Vaults receive block rewards?**

Vaults are the heart of the Interlay network. Vaults are network participants who ensure BTC remains locked on Bitcoin while iBTC exists - that is, they enforce the 1:1 peg to locked BTC. To prevent misbehavior, Vaults lock collateral with the parachain such that the collateral value always exceeds the value of the secured BTC. If a Vault misbehaves, their collateral is slashed and users reimbursed. Vaults take up liquidation risk as well: if the price of the collateral assets decreases significantly compared to BTC, Vaults may be liquidated and lose their collateral. Vaults hence receive INTR as reimbursement for their risk - and to ensure they can protect themselves against hostile governance takeovers. Anyone can become a Vault, anytime.
Reminder: Vault only earn block rewards if they have BTC locked. Rewards are distributed based on each Vault’s share of the total BTC locked.

Like it was describe in the whitepaper, Early Vaults receive more rewards as they take up higher risk in terms of protocol maturity.

The same rules was introduce and apply for Kintsugi vaults.

### Next steps

   1. Let’s discuss here
   2. Please vote on the off-chain proposal to signal your position : https://voting.opensquare.io/space/interlay/proposal/QmYXjYiMQteMXQJwcoA7TWNDg755vqtu4WN5D7Pw5t4eqW

### Resources

Interlay/Kuntsugi 101: https://docs.interlay.io/#/getting-started/interlay-101
Interlay token economy: https://github.com/interlay/whitepapers/blob/master/Interlay_Token_Economy.pdf
Vault docs: https://docs.interlay.io/#/vault/overview

Vault rewards distribution

Acala vs Karura has a common stablecoin aUSD, so why does Interlay vs Kintsugi not have a common BTC, it will increase capitalization and influence!

Merge iBTC vs kBTC

### Summary
Now that staking and governance are live on Interlay, we would like to open an XCM channel with Acala in order to facilitate transfers and further cross-chain developments and DeFi initiatives.


### Discussion Point
**Any arguments against opening this XCM channel?**

We want to quickly open an XCM channel with Acala as this will open many potential applications and use cases, such as liquidity pools, tokens to be considered as collateral or the option for users to transfer their iBTC to Acala to be used there. 

We want to understand if the community has any strong argument against this action. If we don't see any strong opposition, we will proceed to open the channel and fast track any needed proposal towards opening this XCM channel. 

Author: Alex @Interlay

Open an XCM channel with Acala

### Summary
Staking rewards are ready to be activated, according to the Interlay tokenomics: 5% of 4 year supply (i.e., 50M INTR), emitted linearly (i.e., 12.5M INTR per year).

### Proposal
Interlay’s governance model requires INTR to be staked to participate in voting. The more and the longer INTR are staked, the more voting power a user receives - and hence the more staking rewards. Rewards are distributed proportionally based on the voting power - so called vINTR (Note: vINTR is not a token and cannot be transferred. It is only a measure of an account’s voting power).

Staking is already active - but no rewards are currently distributed. Rewards are important to incentivize active staking and governance participation which is critical for Interlay’s security and growth as an ecosystem.

The staking user interface has been added to the Interlay Dapp (https://app.interlay.io/staking) making it easy for both beginners and advanced users to stake and participate in governance.

**The next step is hence to activate staking rewards via an on-chain governance proposal.**

Fellow Interlay innovators - as always, we appreciate your time reviewing this proposal and welcome comments and feedback.

**Resources**
Interlay Governance 101: https://docs.interlay.io/#/interlay/governance
Governance guides: https://docs.interlay.io/#/guides/governance (incl. how to make a proposal)
Interlay tokenomics: https://docs.interlay.io/#/interlay/tokenomics